September 29, 2009

• Consumers Have Learned A Tuff Lesson, Pt.2
    Simple solutions to reducing debt

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  Most Americans have more than one credit card. In fact, the average number of cards Americans carry is seven. If you are carrying balances on all seven, the first step to consider is consolidating to the one that has the lowest interest rate. An added perk will come from the new credit card reform legislation that will become effective in February 2010. One provision of the law requires credit card companies to pay any excess over the minimum balance due to the highest interest bearing debt first. Making payments that are greater than the minimum payment due will save you interest and help to pay the debt down faster.

  When carrying debt on more than one credit card, you should always pay off the card carrying the highest interest rate first. This also means that if you have any extra funding that can be paid toward debt, always apply it to this account first. Another strategy could help you if you have one or several credit card accounts with small balances. In this case you might want to consider paying off the smaller balance account first and work on the account with the higher interest and larger balance. This strategy could cost you in a bit more in interest at first, but in the end, you'll make headway on the larger debt.

  Lastly, you could choose to pay off the credit card account that has the largest balance first. The greatest benefit here would be to prevent your lender from slashing your credit limit. Banks have been slashing credit limits on accounts that are carrying larger balances in order to reduce the risk of defaults. If you are carrying a balance of more than 50% of the available credit, you are at risk of having your credit limit slashed. The best position to hold is 30% or below the credit limit. This will also help to boost your credit score. According to the Consumer Report, any of these approaches are viable and the one you choose should be matched to your own personal circumstances.
  
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